DEVELOPMENT OF THE JAPANESE MERCHANT CLASS (1865-1945)
I. BACKGROUND: TOKUGAWA PERIOD (1600-1867)
A. MERCHANTS: Lowest class
1. Samurai: Highest class
2. Time of peace led to decline of warrior class, and
increase in merchant power
B. IDEAS COINCIDING WITH GROWTH OF MERCHANT CLASS
1. Frugality as a value for early merchants
2. Attraction of merchants to expanding cities
a. Osaka as an example
b. Growth of commerce & wholesaling in cities
3. Concept of Family applied to merchants
a. Merchant Houses (Mitsui, Konoike, etc.)
b. Merchant Guilds
c. How traditional values were applied to business
4. Economic situation in Tokugawa period
a. Excessive taxation; increase in borrowing
b. Wealth found in productivity of the land
II. MEIJI RESTORATION PERIOD (1868-1912)
A. IMMEDIATE EFFECTS OF TOKUGAWA OVERTHROW
1. Return of power to Samurai class
2. Government assumes role of modernization/
industrialization of Japan (as opposed to merchant
B. LATER PERIOD (After 1880)
1. Government begins to sell out to private interests
a. Many former aristocrats become merchants
(i) Increase in political power for new
(ii) Loosening of bonds of tradition over
(iii) Boosting of the economy
III. TAISHO-SHOWA PERIOD (1912-1945)
A. BEFORE WORLD WAR II
1. Growth of big business combines (Zaibatsu)
2. Concurrent growth of military
3. Merging of business and military interests prior
to World War II (1936-1937)
B. AFTER WORLD WAR II
1. Unsuccessful attempt to dissolve Zaibatsu control
2. Re-uniting of large firms after attempted dissolution
3. Conclusion: U.S. role in post-war re-establishment
of Zaibatsu system
The purpose of this research is to examine the development of the Japanese merchant class, with emphasis on the years 1865-1945, and including basic background back to the Tokugawa period. Three main periods of Japanese history are dominant in events leading to the development of the Japanese merchant class. They are: Tokugawa Period, 1600-1867; Meiji Period, 1868-1912; and Taisho-Showa Period 1912-1945.
With the death of the famed samurai, Hideyoshhi, in 1598, the Ashikaga Shogunate came to an end. The triumph of Tokugawa Ieyasu in the battle of Sekigahara in 1600 brought the Tokugawa Shogunate into full power over the country. Two and a half centuries of military rule were begin in which political peace and social stability were maintained. The Tokugawa rulers froze the political and social order, cutting Japan off from the rest of the world.
The present day japanese way of life and pattern
of thinking cannot be clearly understood unless
the nature of Tokugawa society is understood, for
out of this setting the Japan and the Japanese of
the 19th and 20th centuries emerged. (Hane, 152)
The Tokugawa made the daimyo vassals of the shogun; untrustworthy daimyo were removed. It made a personal empire out of Japan. At the end of its rule the agricultural yield of the nation was about thirty million koku. The Tokugawa family retained seven million of the national product. The administrative procedures of the Tokugawa were highly advanced – Japan and its people were assigned to rigid compartments. All classes paid heavy taxes, with the peasants taxed 40% on their harvests. From the new merchant class, loans were obtained, in effect, forced donations for the privilege of commercial existence.
The freezing of occupations resulted in a four-
class division of samurai, peasants, artisans,
and merchants. The Tokugawa Bakufu adopted a
policy of perpetuating this situation and main-
tained a rigid division of these four main classes.
During the long period of relative internal peace in the Tokugawa era, the samurai had little occasion to serve their traditional function as warriors. Since industry and commerce were inferior tasks for the noble warrior, the samurai disintegrated into a class of functionless parasites.
As the samurai and their families numbered about
two million persons, or 1/16th of the population,
on the eve of the Restoration, the maintenance of
this large idle class must have constituted a
heavy burden on the rest of the nation. (Allen, 11)
The final Japanese pattern of inter-locked social and financial structure was an endowment from the Tokugawa Shogunate. There were broad divisions between upper- and lower-class samurai, who were the elite of the society. The peasantry, 80% of the population, came next in the hierarchy. They were bound to the land, and could not change occupation. The peasant existed for the support of the samurai and the Shogunate. The third and fourth classes were the artisans and the merchants. They were lowest because peasants supported the economy of the nation by their agricultural work. The merchants were at the bottom because the orthodox philosophy, Confucianism, held money-making in disrepute. As a Confucian scholar of the time wrote:
. . . merchants gain wealth without laboring,
encourage luxurious living and undermine the
peoples minds. Farmers not only must be aided
but they must also be respected while merchants
must be repressed and held in contempt. (Hane, 173)
So it was that the tradesmen, merchants, and shopkeepers came lowest in the social scale, but as the economy of Japan developed and expanded in the times of peace, merchants in particular were to gain increasing power, until, by the 18th century, they were able to break down the barriers in the social structure which the Tokugawa had erected. By then the rich merchants were employed regularly as government contractors, and their services were indispensable to the members of the febrile military class (Sansom, 31).
One of the earliest business houses was Mitsui, and in 1720 Mitsui Takafusa compiled a history of merchant houses, warning against extravagance, neglect of business, and the practice of loaning money to the daimyo. He wrote, “for the townspeople, though there are many businesses, there is nothing that they can rely upon but the profits from gold and silver” (Hane 174).
While frugality served the ruling class interest in its own destiny, there is no doubt the proclaimed virtues of frugality, diligence, and devotion to money making were firmly followed by the merchant class of Tokugawa society. The rise of the merchants and their role in the rapid advance of Japan as a commercial and industrial power after the Meiji restoration give ample evidence of this beginning. As the Tokugawa merchants accumulated more and more wealth, they eventually gained financial power over the ruling class and came to dominate the cultural as well as the financial spectrum of the Tokugawa era.
Between 1600 and 1730 the population of Japan increased from 18 million to 26 million. Commercial expansion increased the number and size of cities – 30 to 40 had populations of over ten thousand. One was the principal city of Edo, the seat of the Bakufus government. As chief port and commercial center of western Japan, Osaka reached a population of 400,000 and Kyoto, the center of commerce and culture, 350,000 (Hane 176).
A unique development took place in the city of Osaka; the foundation of its prosperity was the rice market. A daimyo needing money or goods would send his surplus rice to his agent in Osaka, usually a merchant in good standing who would store it in a warehouse. The function of this agent, who was known as a kuramoto, was one that required a knowledge of the market and good relations with other Osaka merchants. The warehouse belonged to the merchant who was licensed by the Bakufu to build and own property. Control was strict.
In 1642 certain officials and merchants conspired to corner the rice market despite the Bakufus antagonism to monopolies. Their children were executed, the merchants exiled, their wealth confiscated. This action was an expression of the dislike felt by members of the warrior class for the merchant class.
Once Osaka was established as the collecting center for commodities, merchandise of every variety poured into the city. Cotton, dyestuffs, vegetable oil, tea; manufactured goods like textiles, timber and minerals. These were handled by wholesale merchants known as toiya. The merchant class and its retainers vastly expanded in population, and locations. Merchant guilds followed —
Some Japanese scholars regard these merchant
guilds as social organizations; almost religious
in character. No doubt they expressed certain
ethical principles which a merchant should
observe, for the leading merchants agreed that
honesty was the best policy, but their motive
was profit – an end with which regulated activity
is not incompatible. (Sansom, 127, et seq.)
Merchants were increasingly attacked to these towns, attaching themselves to the centers of feudal authority. Some merchants prospered as middleman between the growing castle towns and the countryside –
by the end of the Tokugawa period as much as half
probably nearer 2/3 of agriculture was marketed . . .”
It must be remembered the 17th century was a time of economic expansion through domestic trade, and it was mainly in commerce that the merchant fortunes were founded. The merchants always took the lion’s share of profits, even from the Samurai, who had no knowledge and comprehension of trading. A contemporary work describes the process –
Because everyone from the greatest feudal lords
on down to the lowest samurai uses money, the
merchants make huge profits. In prosperity they
far outstrip the samurai class, and enjoy far
more conveniences and necessities of life. With-
out moving an inch, they supply the necessities
to all the provinces, they act as official agents,
of the ruling classes down to the lowest samurai,
changing money, handling rice, and all other
products, even military equipment, as well as
providing facilities for travel, horses, and
trappings, and merchants are indispensable for
any kind of ceremony. (Sheldon, 69)
Merchants who prospered the most were wholesale merchants and brokers, serving the direct consumer needs of the major cities. Rice was shipped to these cities, as noted, and stored for future dispersal. The daimyo used the merchants to manage the warehouses, to convert rice into money. In this way, some merchants came to have some of the special privileges of the samurai, although such are believed to have had samurai origin giving them the knowledge of how to trick their own. Fortunes were made dealing in rice, lumber, and textiles. True, some merchants fell by the wayside, but many wealthy houses were created and flourished with the luxury of the feudal lords, stood the test of time, to emerge and remain as major business and industrial firms. One was the house of Mitsui, which started out as moneylenders, drapers, and brokers.
The daimyo were continually in need of loans.
The penetration of the money economy gradually
undermined their economic position as well as
that of the Tokugawa themselves. (Sheldon, 76)
Another merchant family, the Konoike, started with saki brewing, moved on to shipping, and eventually became the financial agents for many major districts of population. The Sumitomo family made and early fortune in mining copper as houseware became an essential commodity (Hane, 177).
Merchant and craft guilds were organized, following the Japanese penchant for “structure,” but the main objective was to limit the number of merchants and artisans in a given trade. A special relationship grew up between merchant and helper, who was expected to serve the employer in accordance with feudalistic ideals.
The guilds regulated prices and conditions of
production, sale, and apprenticeship. Member-
ship was limited and hereditary. . . .”
In the 18th century, Misuis Edo stores employed a thousand men and women, under a paternalistic policy that regulated their lives in every detail, a concept that remains today a fundamental characteristics of Japanese industry. The Mitsui laid down –
strict rules governing rest periods, health,
sanitation and hygiene. . . . Dormitories were
set up, and the private lives of the employees
were carefully looked after. They were coached
in proper speech and required it be neat and
clean in attire . . . (Sheldon, 65)
The founders of the Shimomura family began as dealers in second hand clothing in Fushimi, near Kyoto. Their policy was traditional.
The duty of the boy apprentices was to greet
customers and see that they were comfortable.
In summer they fanned them with a large fan,
and in winter they tended the hibachi to see
that customers were warm while a head appren-
tice showed goods. (Sheldon, p. 66, fn. 10)
This continued until 1904.
The success of the merchants came in different and unique forms. A form of domestic produced had increased in Tokugawa times. Goods produced by peasant families were merchandised by the merchants. At times, the merchants would make advances of raw materials and equipment to these producers.
Much of the raw silk, cotton, and silk tex-
tiles, paper, mats, lanterns, and many other
articles were produced according to this system.
The success of the merchant guilds led to their excessive taxation in the regime of Ieharu, 1760-1786. With this development, the former standards of integrity among the merchants began to decline as they took advantage of the declining financial fortunes of the Bakufu. The only alternative for the Bakufu was to debase the coinage and make deeper requests of the wealthy merchants for financial contributions, which they in turn were pleased to do as the practice gave them deeper control over the affairs of the Bakufu.
Between 1806 and 1813 the Bakufu called upon
the merchants and villagers to contribute
money three times, and over 1.4 million ryo
were collected. (Hane, 220)
Thus, as the economy weakened, and to cope with rising costs of their personal and political needs, the daimyo were forced to borrow. One startling example is found in the family of Yodoya Tatsugoro whose wealth was so great the Bakufu finally confiscated his entire fortune in 1705. The Konoike family records showed that in 1706 its loans to the daimyo totaled 278,000 ryo and by 1795 that amount rose to more than 416,000. In the end the merchants won out over efforts of the Bakufu, the daimyo, and the samurai, to liquidate them.
Both large and small daimyo are constantly
plagued by their creditors to pay their debts
and have no peace of mind worrying about how
to make excuses. They fear the sight of the
money lenders as if they were demons. For-
getting they are samurai, they bow and scrape
to the townspeople. (Hane, 225)
A sorry sight for the samurai who formerly had the right to take a peasants head without any provocation.
It was not uncommon for some samurai to make family ties with a merchant family as a means of escape from financial problems. Also, as general peace spread over the land, the utility of the samurai was diminished and extreme moral decay set in upon their society – this the merchants took full advantage of.
The merchants who were in the most advantageous
position were those who had the closest connections
with the feudal ruling classes. (Sheldon, 70)
As new wealth was found in the greater productivity of the land, the merchants began investing their money in the commercial and industrial enterprises that were developing in the rural areas.
Capital accumulated through commerce and money
transactions was often put back into the enter-
prise. The establishment of branches(?) is a
very common example of this type of capital
utilization. Sometimes capital was used to
branch out into other fields. Mitsuis setting
up of money exchanges is an example of this.
In this way the merchants dominated the lending of money, the selling of daily necessities – sake, salt, soy-sauce, oil – to the villages. Others began to engage in manufacturing such as spinning, weaving, pottery making. Others went into the actual marketing of cash and industrial crops that were produced in the villages and rural areas.
The result of this was the development of a
group of rural dwellers, known as gonosho –
rich farmer/businessmen – who came into
existence in villages that were affected
strongly by the commercial economy. (Hane, 230)
The end of two hundred and fifty years of Tokugawa rule, and the subsequent restoration of “imperial” rule by the Emperor was political in nature. But it was also a product of the new social and economic forces that came about during the latter part of the Tokugawa era. The merchant class had confirmed its powerful position. The Shogun was powerless in his efforts to prop up the decaying structure of feudalism. Decrees in 1831 and 1843 hit at the merchants’ privileges by abolishing all forms of guilds. The result of these was to disrupt economic life even more. The institutions which the shogun had created to control the economic life of the country crumbled even before the political revolt began.
The foundations of its rule had been undermined
by political, economic, and intellectual changes
and it needed but the shock of foreign aggression
to bring down the whole edifice. (Allen, 25)
An able group of samurai moved against the Shogunate in the name of the Emperor and in 1868 the House of Tokugawa was overthrown. It was this class of lower rank samurai, hating the merchants, socially and economically distressed, impoverished, who stood to gain the most by the Restoration of the Emperor to a position he had not occupied for some 800 years. The great merchants were reluctant to change their favorable “status quo.”
The modern period of Japanese history is
usually dated from 1868, the year of the
Meiji restoration. . . . Even so recent a
feature as industrialization began in the
closing years of the “feudal” period, with
the introduction of Western technology and
methods in several branches of industry.
The merchants entered the period of Meiji capitalism under serious disadvantages.
Their outlook was too narrow, they had thrived
on protection, and with a few exceptions fell
back to huckstering, while ambitions samurai
of low and middle rank became bankers, merchants,
and manufacturers. (Sheldon, 175)
It fell to the lot of the ambitious young samurai in government and business to take the active lead in the economic modernization of the Meiji period. They were to draw upon the valuable experience and practices of the Tokugawa merchant class. They were to be able to understand the new concepts of machine industry – about which the earlier merchants knew little. The samurai class was better suited to comprehend an international approach, which was forced upon Japan.
Despite the advance of the merchant class, the samurai were far from a lost cause. At the end of the Tokugawa era, 60% of the area of Edo was occupied by the samurai class and 20% by temples and shrines. The townspeople, constituting about 50% of the populace, were crowded into the remaining 20%. They were usually located in fixed sections of the city on the basis of their trade. That is, the carpenters were located in one section, the masons in another, the smiths in still another, and so on. The dealers in rice, fish, paper, dry goods, were mostly located in similar fixed sections (Hane, 177).
With the Meiji restoration, the strict class system created by the Tokugawa was eliminated, chiefly in the area of the power of the samurai and the daimyo over land and people. These former aristocrats were not permitted to become farmers, merchants or artisans. But the older merchants were not prepared to play the role of modern industrialists. Speculators, money lenders, rice brokers, yes – the great merchants families of Edo and Osaka had become wealthy by manipulating the terms of trade through government regulation. The Restoration found them isolated to traditional lines of business and without industrial experience to meet the western challenge. Two of the three greatest merchant families – Ono and Shimada – went bankrupt in the first decade of the Meiji period (Smith, 68).
The government was forced to play a prime role in the industrialization of modern Japan. The fundamental achievement of the first 15 years of the Meiji period was the creation of an institutional environment favorable to economic development and industrialization. Private entrepreneurs now took advantage of the new opportunities for domestic production and international trade. Under Prime Minister Masayoshi, the financial status of the government was firmed up, the country got a modern currency system and a budget structure. The speed of development was crucial – to catch up with the western world for the traditional economy was fragmenting under the heavy impact of foreign trade. To develop modern industry the government had no choice but to act as financier and manager.
A noteworthy characteristic of the developing
economic policy was the close cooperation that
was established between the government and cer-
tain favored business interests, a policy that
culminated with the emergence of gigantic
business houses, the “zaibatsu.” (Hane, 286)
Once the restoration was confirmed, these enduring houses were used as tax collectors by the government. This was a lucrative business practice because farmers were required to pay taxes in money, thus being forced to convert rice into currency. Houses such as Mitsui made huge profits by buying and selling rice turned in for tax payments when the market price was most favorable for their brokerage. In 1872, a system of national banks was established and the government encouraged the entry of these houses into the banking business. Many state-owned enterprises were turned over to them at very low prices. In 1880, a law permitting the government to transfer factories to private hands was passed, and factories in non-strategic industries such as cotton spinning, glass making, and cement were turned over to private merchant firms (Hane, 286)
In 1880, there came and end of the initial phase of Japanese industrialization, where the government was promoter, owner, manager. Departments of the government were instructed to sell enterprises under their authority to private interests. There are three basic interpretations for this action.
Government enterprises were sold at nominal
prices and on the easiest terms to a few
wealthy families with the purpose of effecting
an alliance between the government and a small
but wealthy capitalist class of merchants and
ex-daimyo. (Smith, 87)
Thus, key industries were concentrated in the hands of a few who were able to bring the entire economy under their direct control, and hence under indirect government control.
Another interpretation is that the transfer was a casual relationship between the rise of political parties and government. The samurai took on the facade of western politics, in the name of civil rights, laissez faire, a parliament and a written constitution, still resenting the priorities of city merchants. A third interpretation is that these government enterprises were sold for financial reasons. The Meiji government had been forced to borrow beyond its means since the Restoration. In 1880, assets of the government were 7 million yen against debts of 160 million. The economy of the Meiji government was in bad condition. In 1882, in support of the first interpretation, the Finance Minister Matsukata Masayoshi, announced –
The natural function of government is chiefly
to protect the public interest and guarantee
peace to the community. The government should
never attempt to compete with the people in
industry and commerce. It falls within the
sphere of government to look after matters of
education, armament, and the police, while
matters concerning trade and industry fall
outside its sphere. In fact, in these matters
the government can never hope to rival in
shrewdness, foresight, and enterprise, men who
are actuated by immediate motives of self-
interest. (Smith, 95)
As the early Tokugawa Shoguns had sold out to the first merchants, so now the Meiji Restoration sold out to the modern merchants. Some of the results are evident in terms of modern, contemporary conditions.
The Sumitomo Company was allowed to keep the Besshi Copper mine, the largest in the country. The Miike Coal Mine was acquired by the Mitsui Company. A few gold mines were acquired by the Furukawa Company, and many other gold nd silver mines passed into the Mitsubishi Company in 1896. The government supported and subsidized the Mitsubishi Company in its shipping ventures, giving 13 ships, former military transports, to the founder of the company, Iwasaka Yataro. In 1875(?), the government created a yearly subsidy for this business. In 1887, Mitsubishi acquired he government’s Nagasaki shipyards. State support of sea transport was considered necessary for strategic and economic reasons – a strong merchant fleet was supported so that it could compete on equal terms with foreign firms. A form of “Watergate” was common practice in the Japan of the early Meiji – “government” recognized its inability to match the merchant/industrial class –
. . . there were frequently close personal bonds
between key members of the government and the
major business houses. Inoue Kaoru (later Foreign
Minister), for example, had close ties with the
house of Mitsui, and the main reason . . . the
company was able to acquire the Miike coal mine
was that it had obtained information about its
competitors bids from the Minister of Finance,
Matsukata. (Hane, 287)
In broad terms, the Meiji Restoration had a revolutionary impact on the entire Japanese society as it loosened the bonds of traditional institutions and freed much of the restrained energies and ambitions of all members of the social hierarchy. This is not to say the motives thereof were actuated by what would today be called “democratic” in nature. They had their own special origins, derived from the nature of their past.
A considerable segment of Japans ruling class
manifested a spirit of enterprise and adapta-
bility at an early stage of her contact with the
west . . . numerous young samurai grasped eagerly
at the potentialities of western learning . . .
in this they were joined by the many rich peasants
of the central and western regions, and the new
merchant class emerging in the port cities. From
these elements were recruited the new bureaucrats,
businessmen, and technicians, who led the way in
exploiting the new technology, in economic life as
well as government. (Lockwood, 583)
This new freedom extended to rural as well as urban areas. Many of the newly educated Japanese returned to the countryside where new marketing enterprises existed which did not obtain in the more organized urban groupings. One example is that of Kono Hironaka, 1849-1923, who was born into a prominent village family and became a key leader in organizing political societies among the leading rural farmers and merchants (Hane, 308). In the main, the merchant class now followed the “establishment” lines of nationalism and the thirst for power. The motif was “strengthen the nation,” not free the common man. The merchants concept was still all powerful in the social structure.
Against this, it is important to note that industrial growth in the Meiji time was largely supported by the traditional agricultural segment. In the early 1870’s the land tax was 90% of the state revenue; in 1882, more than 80%; in 1893, 45%. Though indicating a decrease as industry spread, in the following years the tax burden on the farmers remained higher than that on the merchants and industrialists. In 1908, 28% of a farmer’s income was paid in taxes while a merchant paid only 14% (Hane, 332).
The most rapid growth period was after the Russo-Japanese War. During this time a number of large-scale industries came into being, and the trend was again supported by the government for military and political reasons. Where “national interest” was concerned, the government provided the subsidies. In the 1880’s, private firms began building the railroad trunk lines linking the major cities, and the number of private railroad companies increased from 12 in 1889 to 24 in 1895. Shipping was equally supported, and run by the huge private firms. By the Sino-Japanese War merchant ships numbered 528 with a tonnage of 331,000. By 1906, tonnage was near 700,000 and in 1913 half of the overseas trade was carried in Japanese vessels (Hane, 333). The Meiji policy of turning plants over to operation by private business was extended to all branches of the national economy and the industrial sector, to be appropriately managed by merchandising specialists who had advanced politically and socially a great distance from their beginnings in the Tokugawa era.
The development of the zaibatsu was, of course
not only determined by the restrictions of the
established imperialist powers. It was also
inter-connected with the role of the state.
Early on in the Meiji period it was decided to
sell off enterprises under its jurisdiction to
private interests. . . . What it boiled down to
was that the government retained control over
arsenals and military-related activities, while
”civilian” industry mainly went to private
individuals. (Halliday, 60)
In this way, the zaibatsu functioned as a segment of the national
economic structure. The political weakness of merchant capital at the time of the Restoration was strengthened by political authority in the 1880’s. These government sales were designed to win over the people to the new regime, but also to consolidate the power of those within the regime. But the primary element was to establish an economic base which would secure the state, and to push Japan further along the road to imperialism which Japanese political and military leaders were backing.
The history of one merchant illustrates the above. The man chiefly responsible for the rapid mechanization of cotton textiles production was Shibusawa Eiichi, an early member of the Meiji government. A few plants were set up in the first years of the Meiji but they were inadequate. In 1878, the government established model plants and imported spinning machines that were turned over to private entrepreneurs with very easy re-payment terms. Here Shibusawa emerged. He received financial support from businessmen and aristocrats and set up a great plant in Osaka in 1883. The plant ran more than 10,000 spindles daily, worked by women brought in from the peasant sector. The year after he began operation, he paid an 18% dividend to the investors. By 1888, 1100 workers were employed in the Osaka Mill. His methods were followed by other merchant groupings and in 1894, 33 new plants were oberable(?) in the Osaka region (Hane, 535).
In proper perspective, however, despite this great rise of the merchant class, Japan was not yet a true industrial society. In 1913, only one-seventh of the total labor force was employed in manufacturing. Japan was still predominantly agrarian. In 1900, 3 out of 5 families were engaged in farming. The farmers supported the industrial/merchant state, the government supported industrial/merchant state, and cheap labor kept the factories going.
Five years after it went into production,
Shibusawas spinning company was paying
dividends of 30%. (Hane, 338)
Emperor Meiji died in July 1912. He left Japan an industrial and military nation ready to merge into the 20th century power structure. The “restoration” of the emperor concept had been the most effective single instrument used by the ruling class – aristocrat and now merchant – to retain their authority and power and wealth. The imperial court had been changed from an empty institution, unknown to the masses during the Tokugawa era, into an institution endowed with absolute pyramidal sovereignty. The merchants of old were now the industrial leaders backing this authority, with the military as their senior partner.
In this process the traditional merchant houses
provided their share of leaders even though they
mainly were found in merchandising and banking.
They did not actually turn to industrial activities
until new blood was injected from the former samurai
class. (Ohkawa, 219)
The Meiji era left a highly competitive business world where contending parties typically organized themselves around inter-locking groups. The family-centered empires were cliques of financial and business interests. In 1913, Lafacadio Hearn
wrote – “the Japanese continued to think and act by groups, even by groups of industrial companies, the zaibatsu” (Hane, 385). So it was the Meiji regime carried out its policy of “enriching and strengthening the nation.”
Modern economic development in Japan began with the period, Taisha-Showa, 1912 to 1945. The concentration of industrial and commercial enterprises in the hands of a few business combines, the zaibatsu, had continued the pyramidal structure of Japanese economy,
19 households had incomes over 1 million
yen yearly, – 18% of the nations total
households, 2,300,000 families at the very
bottom, received 200 yen or less, 3.8% of the
national household income. (Hane, 409)
There were ten to twenty big business houses in pre-World War II Japan, and there were of these four dominant ones – Mitsubishi, Mitsui, Sumitomo and Yasuda.
Zaibatsu were founded in the 1880s and 1890s,
but their major impact on the economy was not
felt until the first two decades of the 20th
century. (Ohkawa, p. 214, fn 13)
These houses owned powerful banks, extended their activities into every area of industry and commerce. They all remained family owned and controlled. Sumitomo enterprises were almost all controlled by one family while the Mitsubishi combine was held and run by two Iwasaki families. The Mitsui interests were controlled by eleven branches of the family that acted as a unit in accordance with normal household rules – policy was decided by a family council and 90% of the wealth was held collectively (Hane, 409).
The machinery used to manage the vast holdings of these combines involved the domination of each by a holding company where the house fortune was usually concentrated. Company control was extended through a network of subsidiaries and affiliates by intercorporate stock holdings, interlocking directorates, management agreements, and loans from the combine bank (Lockwood, 215).
The house of Mitsui was the largest and most powerful. In early Meiji it was active in commerce and banking before moving into mining and machinery. By 1937, it owned properties valued at 1.635 billion yen, while its control extended over an empire worth a great deal more. Yasuda remained a banking combine. In 1944, it controlled assets in excess of 40 million yen. Sumitomo was in mining but in 1945 it had strong investments in 123 companies in 30 industries. Mitsubishi in 1944 controlled 25% of the national shipping and building, 15% of coal and metals, 16% of bank loans, 20 to 25% of electrical equipment, 50% of flour milling, 59% of sheet glass, 35% of sugar, 15% of cotton textiles (Hane, 410).
The Japanese were particularly successful in organizing and extending complex systems of
production and marketing within which numerous
small establishments came to perform highly
specialized functions and were yet linked together
in a flexible and far-reaching pattern of social
cooperation. (Lockwood, 584)
The penetration of these cartels was seen in every branch of government. Top executives from the zaibatsu circle developed close associations with the dominant political parties by providing financial support. Thus, neither the government nor the political parties made any effort to curb the growth of the combines. The bigger firms gobbled up the smaller companies or eliminated them. The zaibatsu were able to increase efficiency, cut costs, hire the most able men, and by dominating sources of credit held control over customers, suppliers, and those competitors they did not in fact take over.
Unquestionably the zaibatsu played a significant
role in the rapid development of the Japanese
economy by investing their profits in new enter-
prises, developing export markets, building
strategic industries, innovating and taking con-
siderable risks . . . (Hane, 411)
A major characteristic of the Taisho era was the extent of the influence and involvement of big business in political parties. Graft and corruption were the by-products of the great need for political funding, even for government fiscal operations. Under Prime Minister Hara, in 1918, the cabinet posts were filled by party men, former business men having close ties with the zaibatsu. The military formed a separate clique. At the height of his political career, Hara was killed by a political assassin. Many years of political unrest, labor riots, and natural disasters such as the famous earthquakes, ensued to plague the zaibatsu efforts. Even the Army began to make trouble for them over disputes as to foreign policy, war with the Soviet Union or China the key issue. Soon the army was to have as strong a voice in the government as the zaibatsu.
The outbreak of the China War in 1937 settled the matter, and in the Hirota cabinet – 1936 – the military and zaibatsu consummated a happy wedding. Some business men, and merchants, managed to develop new zaibatsu by using conquered Manchuria s a base of operations and defense production, all achieved by a savage exploitation of Chinese workers there. Now the zaibatsu worked with the military in building defense industries as army expenditures began to increase. The major families such as Mitsui and Mitsubishi began contributing to social welfare programs. A nominal amount of stock was sold to the public to build a front against growing charges of monopoly. Yet, Mitsubishi was to produce 30% of new ship tonnage, to move into aircraft production, and by 1940 was testing the famed Japanese ZERO.
With the end of World War II, the U.S. policy statement of September 6, 1945, directed SCAP(?) –
to favor a program for the dissolution of the
large industrial and banking combinations which
had exercised control of a great part of Japanese
trade and economy. (Hane, 571)
To break the zaibatsu control over the economy, key holding companies were required to dispose of their stocks to the general public. An anti-monopoly law was passed prohibiting trusts, cartels, interlocking corporate controls, agreements in restraint of trade. A third step was the enactment of the Law for the Elimination of Excessive Concentration of Economic Power (Hane, 570).
Eighty-three zaibatsu companies were broken up, about 5,000 others forced to re-organize. The Mitsui and Mitsubishi organizations were cut up into 140 separate firms. However, the final analysis was –
The effort to eliminate big business combines
turned out to be the least enduring of the
occupation reforms since most of the old
zaibatsu firms re-united, albeit in a looser
form, after SCAP departed. The mergers in-
creased with the rapid economic growth of the
1950’s and 1960’s. (Hane, 571)
Much of this was made possible by American efforts to bolster Japan as a threat both to China and the USSR on the global front. Also, U.S. economic interests opposed any real shift in zaibatsu power. Before World War II, the United States was the largest foreign investor in Japan, over 80% of all foreign capital. American General Electric (?) owned 16% of Toshiba, the largest electric company. These companies which had profited by their associations with the zaibatsu worked strongly against de-concentration. It was the Cold War that put the zaibatsu back in the saddle, with MacArthur’s approval.
In June 1950 the Japanese government enacted
a Foreign Investment Law. Since that time the
US has been responsible for about 2/3 of all
the foreign investment entering Japan.